Equity release hits record high as over-55s tap into housing wealth

More than 22,500 new plans were agreed for the first time since 2008.

Retired homeowners are cashing in on soaring house prices, unlocking a record £1.61bn from their properties in 2015.

For the first time since 2008, more than 22,500 plans were agreed during the year, according to the trade body Equity Release Council.

In fact, the market for equity release has doubled in size since 2011 and is now 33% higher than its pre-recession peak.

Drawdown plans, which enable people to unlock money from their home in stages, continued to be the most popular form of equity release, accounting for seven out of 10 new plans during the year.

Why is this happening?

Rising house prices have left growing numbers of retired homeowners sitting on significant property wealth.

And at the same time, lower pensions mean many people are looking for ways to boost their retirement income.

Who does it affect?

Equity release plans can be taken out by homeowners aged over 55, and are particularly popular among those who are asset rich but cash poor.

Nigel Waterson, chairman of the Equity Release Council, said: “These year-end figures are the latest sign of growing reliance on housing wealth as a key pillar of later-life financial planning.

“The rising popularity of drawdown has been one of the success stories of the last decade, and product features have since appeared allowing customers to protect a percentage of their equity as an inheritance, make part-repayments of capital or make interest repayments on their loan.”

Sounds interesting. What’s the background?

People who want to boost their retirement income through unlocking equity from their property have two main options.

“The rising popularity of drawdown has been one of the success stories of the last decade, and product features have since appeared allowing customers to protect a percentage of their equity as an inheritance..."

The first is to take out a home reversion plan, under which they sell their property to a home reversion company for a one-off lump sum, but continue to live in it either until they die or need to go into care.

The second option is a lifetime mortgage, under which they borrow money against the value of their home, but the capital and interest is not repaid until they need to sell their property or they die.

Many lifetime mortgages include a negative equity guarantee, which means people can never end up owing more than their home is worth.

Drawdown plans are a type of lifetime mortgage under which people withdraw cash in stages as and when they need it, reducing the amount of interest that accrues.

Top 3 takeaways

More than 22,500 equity release plans were agreed in 2015 for the first time since 2008.

Homeowners aged over 55 withdrew a record £1.61bn from their properties.

Drawdown plans, which enable people to unlock money from their home in stages, continued to be the most popular form of equity release accounting for seven out of 10 new plans during the year.